Emerging Markets

Safety in Unlikely Places

Small-caps in small developing markets are far less correlated to U.S. stocks than big, well-known names.

When most investors think of safety, they think of household consumer-goods firms or health-care stocks. But maybe they should be turning toward some more obscure stocks in places like the Philippines or Peru.

Counterintuitive as that may seem, some of these less-traveled corners of emerging markets could offer a better defensive strategy. Many of the traditionally defensive companies in the biggest emerging markets trade at high valuations. Plus, instead of the diversification emerging-market investors seek, sticking with...